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Richard Giller, a Partner with Reed Smith, has spent more than 30 years crafting litigation strategies for complex insurance and commercial disputes. A fierce advocate for policyholders, Giller has agreed to join us for a two-part interview series in order to provide insight into the topic of loss-of-value insurance. You can read part one here.

Richard Giller

Most of the publicity seems to be about football players. Could a loss-of-value insurance policy be used for every sport, or just football?

Loss-of-value (LOV) coverage is available to student-athletes competing in all of the income-producing sports as well as professional athletes in virtually all sports. Pursuant to NCAA guidelines, permanent total disability (PTD) policies with LOV riders are only available to those student-athletes who are projected to be a 1st round pick in the NBA, WNBA or MLB drafts or a projected 1st, 2nd or 3rd round NFL or NHL draft pick.

The NCAA has also established maximum limits of PTD coverage available based on the sport: $5 million for football and men’s basketball; $1.5 million for baseball; $1.2 million for men’s ice hockey and $250,000 for women’s basketball. Because LOV policy limits cannot exceed the PTD limits, the same amounts would apply with equal force to LOV coverage as well. Student-athletes and their families are, of course, free to purchase more coverage if they like.

Since this is paid for by the NCAA, this is a pretty significant benefit for a college athlete, especially considering that only 1.5% go on to play in the NFL, based on data from the NCAA. Any idea how many policies are in existence now for college athletes?

Hundreds of stand-alone PTD policies (without LOV coverage) are issued to college athletes annually. However, the number of PTD policies with an LOV rider is estimated to be approximately 90 per year. Of that amount, about 35-40 are issued to football players; 25-30 are procured by college basketball players, and approximately 15-20 high school and college baseball players purchase PTD/LOV policies.

A number of PTD only policies (without LOV coverage) are also sold to women’s college basketball players annually and about 10-15 college hockey players secure PTD-only policies each year. It is somewhat unusual to see LOV riders for women’s college basketball players or college hockey players.

It seems like the big question about loss-of-value insurance is why buy if it so rarely pays out, as has been written. Buying $90,000 worth of lottery tickets each year would seem to be more reasonable than paying that same amount for an insurance policy that will not be paid when it is needed. Why buy if collecting is so doubtful and might require a lawsuit?

To paraphrase Mark Twain, reports of the lack of payouts under LOV policies have been greatly exaggerated. In fact, I have personally been involved in a number of LOV claims that have resulted in substantial payouts. In fact, every LOV case I have dealt with has resulted in a payout. Additionally, only one of the many LOV claims with which I’ve been associated involved any type of litigation and that was because the insurance company filed a lawsuit against the professional athlete first.

However, unfortunately for student-athletes, the reports about the delay in securing LOV payouts have not been exaggerated. Given the medical issues and records involved, securing a payout under an LOV policy often takes longer than anticipated. Indeed, it is the rare exception, rather than the rule, that an athlete with a PTD/LOV policy who is injured during the policy period and, because of that injury, signs a contract for less than anticipated and immediately receives a check for the full amount of his loss after submitting a claim under his policy.

As one of the only lawyers in the country who has secured significant PTD/LOV payouts for a number of college and professional athletes, I am all too familiar with the arguments proffered by insurance companies seeking to deny or limit those payouts.

Those arguments generally fall into the several categories: (1) claims by the insurance company that the policy application contained misrepresentations or omissions regarding the athlete’s prior medical history; (2) assertions by the insurer that, during the underwriting process of proposed LOV threshold amount, the insurer was provided with false or fraudulent information by the wholesale broker/coverholder who, again, has no direct contact with the schools or the athletes; and (3) arguments that an athlete did not suffer a single injury but, instead, suffered either a series of micro-traumas that every top level athlete regularly endures and overcomes over the course of their careers or a degenerative medical condition.

Would it make more sense for the NCAA to self-insure or set up a captive insurance company for loss-of-value policies to ensure that its athletes are treated fairly by the carrier?

In my opinion, the following suggestions represent effective ways to ensure that student-athletes are treated fairly both during the process of procuring a PTD/LOV insurance policy and, if necessary, during the claims process following an injury: (1) open, complete and transparent communications at all times; (2) properly advising the persons and entities applying for coverage as to the wording of the applications and the terms, policy language and scope of the coverages being offered under the PTD/LOV policy before binding coverage; (3) dealing with reputable and skilled retail brokers, producing agents and coverholders; and (4) if necessary, retaining skilled legal counsel, with significant experience in this area, during both the procurement process to ensure the best policy wording and immediately following an injury to assist with the claims process and help ensure the maximum payout possible.

In light of these suggestions, it is my belief that either the NCAA or its member institutions might be well-served to research and vet the insurance brokers who operate in the PTD/LOV insurance space. Indeed, if a member institution is going to utilize student assistance fund money to pay for PTD/LOV policy premiums, everyone involved might feel more comfortable with the process knowing that they are dealing with reputable insurance brokers and representatives.

Has there ever been a college player that an insurance company would not write a loss-of-value policy for and, if so, why?

As an initial matter, not every athlete qualifies for LOV coverage either because their anticipated draft position does not support buying a policy and/or because their injury history makes them uninsurable or possibly both reasons. In some instances, a policy might be issued that includes exclusions for a specific body part for someone with significant pre-existing conditions related to that body part.

With that as a backdrop, it is likely that some athletes have been refused LOV insurance because of both pre-existing injuries and/or off-the-field issues. However, privacy concerns and HIPAA protections prohibit me, or anyone else, from disclosing the name(s) of those athletes or the injuries/issues involved.

How come the market has not forced changes in such language to accurately reflect how physical football is and adequately protect the players so they receive a payout when injured?

The Lloyd’s insurance market dates back to February 1688 when the London Gazette first noted the offer of a reward for five stolen watches and encouraged anyone with information to contact Mr. Lloyd at his London shop. In contrast to the 330-year history of other types of insurance policies offered by Lloyd’s, LOV insurance is merely in its infancy.

As I noted in Part 1 of this interview, I have been a consistent and outspoken supporter of exceptional student-athletes securing PTD coverage with appropriate and sufficient policy limits and, where appropriate, purchasing additional LOV coverage as a hedge against an injury impinging upon their future earning capacity.

Consistent with that role, I routinely suggest that what is needed during the procurement and placement process is open, complete, honest, disinterested, impartial and dispassionate communication between and among all of the participants involved, including the student-athlete, members of the athletic departments and compliance offices at member institutions, the retail brokers/producing agents, the wholesale brokers/coverholders and, ultimately, the insurance companies writing these types of policies.

The young men and women student-athletes who are named insureds under these PTD/LOV policies, and who believe that they are properly protected against the adverse impact a significant injury during their final collegiate season might have on their first professional contract are entitled to the peace of mind of knowing that they are actually and adequately protected against such contingencies.

A student-athlete who purchases a PTD/LOV insurance policy reasonably and justifiably believes that, if they continue to participate in their respective sport, they are fully protected against the adverse financial impact caused by suffering serious injury during the policy period.

And yet, all too often, that sense of security can turn into a nightmare and a pitched battle after a claim has been filed when the athletes seek to secure the policy benefits they are entitled to receive. Such a situation is patently unfair.

Should a player ever refuse a loss-of-value insurance policy? With the NCAA paying, is there a downside?

The simple answer to this question is that, in most circumstances, a player should probably not refuse having their school purchase a PTD/LOV policy for them. Individual circumstances may be different for every athlete but, as a general proposition, the handful of student-athletes who have a future in professional sports would be well advised to procure PTD/LOV insurance coverage (with appropriate and sufficient policy limits) as a hedge against the adverse impact an injury might have on their future earning capacity.

The student-athlete should, however, be aware of the potential tax consequences of having their school pay the PTD/LOV policy premium as opposed to the athlete or their family buying the policy themselves.

I am not a tax lawyer but, according to an IRS FAQ sheet: “If you pay the entire cost of a health or accident insurance plan, don’t include any amounts you receive for your disability as income on your tax return.” In other words, if the athlete or their family pays for the premiums, any payout would probably not be subject to income taxes. However, if someone else pays the policy premiums, either the cost of that premium or the ultimate policy payout might be subject to income tax.

As I understand it, the IRS has yet to issue an official opinion regarding the possible tax consequences to a student-athlete whose PTD/LOV insurance policy premium was paid by the athlete’s college or university using SAF money received from the NCAA. My law firm is at the forefront of analyzing these tax issues and should be publishing an article shortly outlining those issues and possible solutions.

Any closing thoughts?

The old adage that “honesty is always the best policy” (pardon the insurance pun) applies with equal force to procuring PTD/LOV insurance policies for student-athletes.

In my opinion, many of the issues raised by insurance companies after an LOV claim has been filed could be solved by (1) open, complete and transparent communication between and among all of the participants involved, including the student-athlete, members of the athletic departments and compliance offices at member institutions, the retail brokers/producing agents, the wholesale brokers/coverholders and, ultimately, the insurance companies writing these types of policies; and (2) dealing with reputable and skilled retail brokers, producing agents and coverholders.

It may also be a good idea for athletic departments or compliance offices to seek the advice of skilled legal counsel, with significant experience in this area, during the procurement process to better understand the vagaries of this unique insurance product and ensure the best policy wording.

About Jonathan YatesJonathan Yates spent much of his career working for Members of Congress in a variety of press and legislative posts. Positions he has held working for Members of Congress and state legislators include Chief of Staff, General Counsel, Legislative Director, Press Secretary, and Legislative Assistant. His journalistic work has appeared in such periodicals as The Washington Post, Foreign Policy, Investor's Business Daily, and TheStreet, among others. He has degrees from Harvard, Johns Hopkins, and Georgetown University Law Center; and has also matriculated at the U.S. Naval War College and The Johns Hopkins University School of Advanced International Studies (SAIS). Jonathan also hosts The Culture of Sports
You can follow Jonathan Yates on Twitter at @politicsports13